The IPO market in FY2017 was very vibrant supported by the increase in HNI investors. As per the prime database year 2017 saw a record capital raising of Rs. 1.6 lakh crore which is 3.6 times the capital raised in 2016.

FY18 witnessed significant number of listings with nearly 190 IPO getting listed among where almost 13 IPO’s issue size were more than Rs. 1000 crore. The total IPO size stood at 74000 crore.

Biggest IPOs of 2018:

  1. General Insurance Corporation of India: Issue size Rs 11,175.84 crore
  2. New India Assurance: Issue size Rs. 9,466.98 crore
  3. HDFC Standard Life: Issue size Rs. 8,695 crore
  4. SBI Life Insurance: Issue size Rs. 8,386.40 crore
  5. ICICI Lombard: Issue size Rs. 5700.94 crore
  6. IRB InvIT Fund: Issue size Rs. 5,032.88 crore
  7. India Grid Trust: Issue size Rs. 2,249.96 crore
  8. AU Small Finance: Issue size Rs. 1912.55 crore
  9. Avenue Supermarts: Issue size Rs. 1,870 crore
  10. ERIS Lifescience: Issue size Rs. 1,741.16 crore

The year 2008 was seen was the year when the stock market was rallying to a new high and many hoped for mega IPO’s in India. But eventually, IPOs of many companies like Reliance Power which were oversubscribed more than 70 times, tripped with the stock market falling by 834 points.

Similarly, nine years later, 2017 has also seen a huge increment in IPOs and various other companies slating for the issue of their shares publically. The issuers have been aiming to take advantage of increasing investors demand and rally in the stock market which was supported by economic reforms like GST implementation, and RERA.

D-Mart

D-Mart collected Rs. 1.37 lakh crore from its IPO which initially had a size of Rs 1,870 crores. Similarly, Cochin Shipyard collected Rs 1.1 lakh crore for its IPO size of Rs 1,468.11 crore. Due to oversubscription, the funds have to be withdrawn from the secondary market and re-pumped into the primary market.

IPO Market

Many IPOs have given great returns to the investors but some of them also lead to investors losing their capital. While many individuals rejoice, a lot of brokers and investors seem to worry because of the high valuation that the IPOs are being sold for. With the oversubscription, many investors are also worried about the promoters selling their part and exiting the shareholdings in the company. The IPOs are auction-driven sales where the pricing can eventually hurt more than the gain expected initially.

Top Performing IPOs

Company Offer Price (Rs.) List Price (Rs.) Latest Price (Rs.) Change (%)
Apex Frozen 175.00 202.00 658.55 226.01
PSP Projects 210.00 199.00 515.80 159.20
HDFC Std. Life 290.00 310.00 496.30 60.1
Tejas Networks 257.00 257.00 354.00 37.74
Salasar Techno 108.00 259.15 346.65 33.76
ERIS Lifescience 603.00 612.00 796.00 30.07
Dixon Technologies 1766.00 2725.00 3544.00 30.06
AU Small Finance 358.00 525.00 659.00 25.52
ICICI Lombard 661.00 650.00 789.95 21.53
Karda Constructions 180.00 136.00 165.25 21.51

Apex Frozen

Apex Frozen listed its shares on 4th September 2017 and has given the best returns. Ironically the demand for the IPO was not very encouraging. However, being a leading producer and exporter of shrimps in India with presence across the value chain, the company posted strong number for the September quarter and the market realized its potential. Analysts believe that the company has a good potential and still has some steam left for investors with llong-term horizon.

PSP Projects

With PSP Projects capital raised, the management planned to use Rs. 51 crore for the capex and the remaining for general corporate purpose. The projects around Ahmedabad and river front and Brigade Commercial Centre depicted the planned operations of the company. The awareness of the company in the private sector, quality of work, delivery and speed of work got the company repeated orders in the pharma sector.

Life Insurance Sector

The life insurance sector in India depicts strong growth, Rising awareness and relatively under penetrated market offered growth opportunity for HDFC Standard Life Insurance. The company believed on profitable growth and not just market share.

Worst Performing IPOs

Company Offer Price (Rs.) List Price (Rs.) Latest Price (Rs.) Change (%)
Apollo Micro System 275.00 478.00 255.80 -46.49
S Chand & Company 670.00 707.00 401.80 -43.17
Matrimony.com 985.00 985.00 755.00 -23.25
IRB InvIT Fund 102.00 103.25 85.15 -17.53
Capacite Infra 250.00 399.00 335.50 -15.91
General Insurance 912.00 850.00 735.00 -13.53
Reliance Nip. Lif 252.00 294.00 257.00 -12.59
Bharat Road 205.00 204.90 181.80 -11.27
Shalby 248.00 237.00 212.75 -10.23
Galaxy Surfact 1480.00 1520.00 1405.00 -7.57

Apollo Micro Systems

With Apollo Micro System the company had issues with the working capital with the company growth declined on a YoY basis. But seeing the growth of the defence sector and the company’s standing among its peers, it is believed to be good in the long term horizon. Therefore investors purchasing the IPO for a short term view stand not to benefit from the company.

S Chand & Company

In the recent past, circulars issued by CBSE advising CBSE schools to use only the NCERT printed content for reference has reduced the demand of S Chand & Company’s educational content in the schools. Also, 85 out of 88 premises of the company’s premises were leased from group companies or third parties with license agreements.

Matrimony.com

Matrimony.com made profit only in FY 2017 with losses in the four years prior to it. Wages accounted for a whopping 45-50% of its cost. There was also a dispute with an investor in its US operations with the company facing regulatory wrangles for the alleged transfers of funds outside India through its promoter in contravention of FEMA. However, the company is expected to scale up its business both geographical and product wise.

Thus IPO’s are not necessarily a great investment and a definitely no for short term investors or persons with no knowledge of the market or company fundamentals.

For successful value creation of the shareholders, the company issuing IPO should focus on long term sustainability by robust organisational performance and operational efficiency.

Things to look for before investing in an IPO:

  • Should not look for presumed gains but aim for long term plan
  • Details analysis of the idea and plan
  • Project size in Pipeline would display the height of company’s scale
  • The capability of the promoter is better with big issue size

Conclusion

Individuals with no knowledge of the equity markets but still aiming to gain from the same can go ahead with mutual funds which provide a variety and pool of investment.

In a mutual fund, the investments are diversified across different sectors to minimize return and maximise the return. Mutual funds also tap the IPOs many times at discount rates which are not available to retail investors. These funds are able to take advantage of their volume of buying and selling to reduce the transaction costs.

The expertise and professionals managing the mutual funds gives the confidence that the picks are carefully invested. Also, the liquidity and smaller denominations of mutual funds enable an individual with low capital to invest which they lack of opting a high priced IPO.

Depending on the individual different mutual funds like Large Cap, Small or Mid Cap and Balanced Fund could be chosen investing a lump sum or through Systematic Investment Plan (SIP).

Mutual Funds for 2018

Large Cap Fund:

These funds invest in large companies that have a history of good performance and stable balances.

Mid Cap Fund:

These are funds that are high risk – high return. They’re a bit riskier than large-cap funds.

Small Cap Fund:

These are the funds that you can invest in if you want very high growth. They are a very high risk too.

If you want to see more funds to invest in 2018, check out: 30 best funds to invest in 2018.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.